The emissions trading complicates sometimes things the were quite simple so far.
This contention (burdened, some may say, with obviousness) is, however, properly reflected in a practical situation where one heat producer undergoes the significant capacity reduction, or partially or even entirely ceases its operations and the supplies of the heat to the district heating pipelines are taken over by another heat producer which, in turn, must invest in new capacities (which consequently constitutes significant capacity extension in the meaning of the European Commission’s Decision determining transitional Union-wide rules for the harmonised free allocation of emission allowances pursuant to Article 10a of Directive 2003/87/EC of 27 April 2011).
The legal measure commented upon in this post:
the European Commission’s Decision determining transitional Union-wide rules for the harmonised free allocation of emission allowances pursuant to Article 10a of Directive 2003/87/EC of 27 April 2011 (“Decision”)
If there were no free emissions allocations, making arrangements between these two – let’s assume independent legal entities - having its object to safeguard the supplies of the heat for the living needs of households - could concentrate mainly on the schedules for switching directions of the heat flow so that consumers were not exposed to excessive inconveniences. In a number of Member States the arrangements in question are also the subject of interest and concern of municipalities which are burdened with responsibility for district heating planning and safeguarding the needs of households in that regard.
What occurs to allocations of emission allowances in such a situation? The previous heat producer (let’s describe him as ‘Installation A’) being incumbent installation received CO2 allowances to cover projected emission needs that ultimately won’t materialise. The prospective heat producer (let’s describe him as ‘Installation B’) will have to increase generation without having free carbon credits in a volume reflecting this increase.
Where it comes to the third trading period the legal treatment is harmonised across the Union because the Decision contains detailed provisions regulating the issue.
As was reminded in the post ‘Benchmarks Decision of the Commission – rules on closures specified’, pursuant to the Decision, an impact on the installation’s allocation of EUAs have, generally, three categories of events:
1) the change to an installation’s capacity (Articles 20 and 21 of the Decision),
2) the change to an installation’s operation (Article 22 of the Decision), and
3) the change to an installation’s activity level (Article 23 of the Decision).
Without repeating the detailed considerations it suffices to observe that the rule is in the described situation the Installation A gets no free allocation as of the year following the cessation of operations (the case in which it entirely ceases its operations) or the allocation to the installation shall be adjusted accordingly as of the year following the one during which the capacity reduction took place (the case in which it significantly reduces its capacity).
Article 22(4) of the Decision:
‘Where an installation has ceased operation, the Member State concerned shall not issue emission allowances to this installation as of the year following the cessation of operations.’
Article 21(3) of the Decision:
‘The allocation to the installation shall be adjusted accordingly as of the year following the one during which the capacity reduction took place or as of 2013, if the significant capacity reduction took place before 1 January 2013.’